Gold had very impressive returns this year, with futures trading around $2,515 per ounce—up nearly 22% year to date. While it has pulled back slightly from its recent all-time high, it still remains one of the best-performing assets of 2024, second only to cryptocurrencies.
The main driver behind gold’s stellar run has been large-scale purchases by central banks. In the first quarter of 2024 alone, these purchases reached record levels, pushing gold to surpass the euro as the world's largest reserve asset, second only to the U.S. dollar. This increased demand from central banks signals strong global confidence in gold as a long-term store of value.
Fed Rate Cuts on the Horizon
Another key factor supporting gold’s rise is the Federal Reserve’s expected interest rate cuts. The Fed has hinted at reducing rates as early as this month in response to signs of a slowing labor market and cooling inflation. Lower interest rates typically benefit gold, as they reduce the opportunity cost of holding non-yielding assets like the precious metal.
Traders are currently pricing in a 31% chance of a more aggressive 50 basis point rate cut, according to the CME FedWatch Tool. This could provide further support to gold prices as we move through the rest of the year.
Hedging Against Geopolitical Risks
In addition to the economic factors, ongoing geopolitical tensions, including conflicts in the Middle East and Eastern Europe, have heightened the demand for gold as a hedge against uncertainty. Investors often turn to gold during times of crisis, as it has historically maintained its value in the face of global instability.
Tom Bruni, head of market research at Stocktwits, recently described gold as a critical “uncertainty hedge.” Inflows into global gold-backed ETFs have increased for three consecutive months, with North American investors driving much of the demand, according to the World Gold Council.
Long-Term Outlook for Gold
Looking forward, analysts maintain a bullish outlook on gold. Goldman Sachs has set a 2025 price target of $2,700 per ounce, citing continued demand from central banks and the likelihood of further Fed rate cuts. They recommend a “long gold” strategy, emphasizing the metal’s role as a hedge against both geopolitical and financial risks.
While September has historically been a challenging month for gold, with the metal declining each year since 2017, analysts believe the current market conditions could break that trend. The upcoming jobs report and Fed decision will likely serve as major catalysts for gold's next move, with many expecting continued gains.
Conclusion
For investors seeking stability and growth potential, gold presents a compelling opportunity. Between its strong performance in 2024, central bank demand, and the potential for additional Fed rate cuts, the metal offers both short-term gains and long-term security. Whether you're looking to hedge against global uncertainties or capitalize on the current economic environment, gold remains a wise investment choice.